RICHMOND, Va. (CN) — A fireworks distributor argued to a Fourth Circuit panel Wednesday that noncompliance notices from the U.S. Consumer Product Safety Commission have forced millions of dollars worth of fireworks into limbo by leaving them no administrative options while opening them up to criminal and civil penalties.
"This has been going on since 2006," Oliver Dunford of Pacific Legal Foundation, representing Kansas-based distributor Jake's Fireworks, said Wednesday. "Jake's is stuck."
After examining and testing samples of fireworks imported by Jake's, the commission's Office of Compliance and Field Operations found that certain samples were dangerously overloaded with explosive material. The office suggested via non-compliance notices that Jake's destroy the fireworks, a nonreviewable decision that Jake's claim gives them no avenue to request a review, in violation of the Administrative Procedures Act.
Jake's argues that the noncompliance notices from the office should work effectively as final orders that can be appealed. The office contends the notices are merely warnings that should they continue selling the fireworks, they can advise the Consumer Product Safety Commission to take action.
The distributor says that because the compliance office doesn't have its own enforcement authority, the process gives regulated parties only one choice for administrative review: continue selling products deemed hazardous through the office until the commission determines to enforce the noticed violations through a formal administrative or judicial action.
Chief U.S. Circuit Judge Albert Diaz asked the office's counsel about notices possibly being used in later litigation.
"The thing that concerns me about this case, and maybe it's not anything unique in the regulatory context, is that in addition to any potential civil penalties there's the specter of criminal prosecution," the Barack Obama appointee said. "Does that change the calculus at all with respect to what an agency has to do in order to give fair notice and an opportunity to be heard to someone like Jake's?"
Government attorney Daniel Tenny disputed the source of future legal troubles for someone served a notice. He said a court can only punish a regulated party for selling hazardous materials, not ignoring a non-compliance notice.
"The specter of criminal penalties comes from the statute. It's not that they can be criminally prosecuted for violating the notices of noncompliance they receive," Tenny said.
"What would they do in that situation?" Senior U.S. Circuit Judge Diana Jane Gribbon Motz, a Bill Clinton appointee, asked. "They can't sell the product, but it thinks the agency's wrong, so what does it do?"
Tenny replied that all the notices provided were warnings.
"They have to decide for themselves whether they think that the governing statute and regulations prohibit the sale of their products or not," Tenny said. "If they think that it does, then they shouldn't sell the products and the fact that staff at the commission thought so then that can inform their judgment."
U.S. Circuit Judge Harvie Wilkinson, a Ronald Reagan appointee, shared concerns that ruling the noncompliance notices are final orders would cause dramatic change.
"Agencies act in an informal way preliminarily all the time," Wilkinson said. "I'm just fearful that the whole dynamic would be changed in the utility of the compliance office if we adopted your view."
Wilkinson called Jake's requested outcome a lose-lose situation where regulated companies would enter unlawful territory without the warning afforded through noncompliance orders.
"It's going to increase the risk substantially that private parties are going to be criminally prosecuted without any kind of notice from government," Wilkinson said. "The regulated party is going to lose the benefit of guidance."
"The notices leave Jake's whipsawed between quarantining millions of dollars of 'banned' and 'misbranded' products or risking substantial civil and criminal liability," Jake's argued in its brief. "The district court's blessing of this procedural limbo conflicts with long-standing Supreme Court precedent."
A Maryland-based federal court found in 2023 the notices do not constitute a final order making them not entitled to review under the act. Jake's argues on appeal it is more complex than disobeying the office, as that opens them up to increased liability in the future since courts could look back on a regulated party's decision to ignore notices as proof of knowingly and willfully selling hazardous products.
"The Administrative Procedure Act creates a presumption of judicial review," Dunford wrote in a statement provided to Courthouse News. "The CPSC wants to turn that presumption on its head. We hope the court recognizes that the CPSC shouldn't be able to use notices of non-compliance as both a sword — to effect compliance — and a shield — to avoid judicial review."
The fireworks in question are Jake's bestselling Excalibur model, a reloadable aerial shell. They are designed to be launched 40 to 50 feet into the air, where a burst-charge component ignites to produce visual effects.
The office claims, among other things, that the fireworks violate the Audible Effects Regulation put into place in 1970 to ban consumer use of hand-held explosive pest control devices. Jake's believes the regulation was never meant to apply to the small reloadable aerial shells they import and sell.
Jake's is among the largest fireworks distributors in the country, with distribution centers in seven states.
Tenny declined a request for comment following the hearing.
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